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Monday, 15 February 2016

How to Become a Millionaire Wealth Builder From Scratch

How to Become a Millionaire Wealth Builder From Scratch

For an aspiring individual it’s important to build wealth because money buys freedom to do whatever you want to do. A wealth builder never likes to be in other people’s employ because they don’t like taking orders from anyone or being told what to do. The sad fact is there are a lot of aspiring individual stuck in menial jobs unable to realize their full potential of building vast sums of wealth.

Building wealth takes time but it is possible to get rich very quickly if you follow the rules of building wealth outlined below. These rules have helped me to double my net worth year on year and most of these ideas come from the 50+ personal finance books and e-books that I have read to become better with my finance. The rules are split into 3 groups as follows: Solid Frugal Foundation, Investing Capital Preservation and Compounding and finally Exponential Financial Growth. You need Meteoric-Confidence and Unapologetic-Discipline in order to succeed with money - Be sure to read my words of wisdom right at the bottom to help you achieve these two characteristics.

As an wealth builder you need to take a multi dimensional route to building wealth. You should acknowledge that frugality is important but it won’t make you incredibly wealthy. Also investing money requires patience and understanding so you won’t become a millionaire overnight. The best chance of getting rich and building wealth comes from creating a solid foundation which allows you to save and invest money.

As you increase your investment knowledge you will also begin to see opportunities that double or even triple your wealth which I will explain below.

Part 1 of 3: Solid Frugal Foundation

Rule 1: Live Within Your Means to Build Wealth

This is a very obvious rule but always worth reinforcing because building wealth requires a solid foundation. Don’t be a flippant and live above your means because you’ll have to pay it back eventually! No one will come to the rescue and paying off indentured servitude is the main road block to building wealth. If you do have debt then call the creditor and demand interest to be stopped or reduced so you can pay it off.

Rule 2: Always Budget to Build Wealth

Budgeting is another simple rule which seems obvious but is in fact oblivious to the masses. Any person who wants to build long term wealth must learn to budget, this means knowing your income and your expenses and then using your money in the most efficient way possible. Don’t be oblivious going through life without any respect for money because you’ll eventually run out and become ridden in hardship reliant on the Government who serve scraps to helpless people.

Rule 3: Increase Income Decrease Expenses

This is another no-brainer which many men choose to neglect because they’re unsure how to build wealth. To get ahead in life you need to save and the best way to do that is to trim your expenses and increase your income. Personally I spend 10% of my personal finance time trying to look for ways to reduce my outgoings and I use 90% of my time to look for ways to increase my income. The greater the gap between income and expenses the quicker you’ll be able to build wealth and become filthy rich.

Rule 4: The Enemy of Building Wealth is Debt

Debt is the worst enemy an aspiring individual could have, this is because being in debt is like being in someone else’s pocket, someone else owns your time. As time is the most important commodity to men you should not be giving it away cheaply. Never get into debt, if you want something get off and earn the money you need. Don’t be a indoctrinated and use other people’s money to fund an unsustainable lifestyle.

Rule 5: Understand the Power of Passive Income

Normal people exchange their time for money. Smart aspiring individual exchange their time to build something meaningful which will give them a lifetime’s income and capital growth. Think of passive income as building a house which might take 1 year. This house will then give you rent for as long as it is standing. Building several of these houses will create enough passive income so money comes in regardless of whether you’re working or not.

Part 2 of 3: Investing, Capital Preservation and Compounding

Rule 6: Become an Expert in Investing

When you save money you need to make it work as hard as possible every year. Deposits accounts offer paltry rates of return which are normally eroded by inflation. By reading and learning about investments you’ll begin to understand that there are investment vehicles that can give you a return between 5% and 10% annually. Do not fear investments that offer a high return, instead understand the investment and judge for yourself whether the risk is worth the return.

Something I invest in is Closed End Fund Investment Trusts which offers investors between 8% and 10% return. On the surface this might seem like scam however proper research and analysis will show that this is how the rich get richer.

Rule 7: Invest in the Stock Market but Reduce Risk

You can remove the fear of losses when you invest in the stock market by taking out Market Crash Insurance. Savvy investors insure their portfolio using 0.5% of their wealth. The portfolio is insured using out of the money Put options which shoot up in value when the stock market falls.

Personally I invest in stocks which will always be around, stocks like Coca Cola, Bristol Myers Squibb and Johnson & Johnson. These stocks have stood the test of time and pay a dividend every year which increases between 5% and 10%, this means that If I receive $100 dividend in year 1 I will receive $110 in year 2 which helps me stay ahead of inflation, these stocks are often referred to as Dividend Aristocrats.

Rule 8: Diversify Your Portfolio

Don’t put all your eggs in one basket. When you invest you should try and mix your portfolio up. I split my main portfolio between cash, stocks and bonds. 30% cash, 30% bonds and 40% stocks. The reason I have 30% in cash is so I can take advantage when an opportunity comes along.

Personally I have 30% in cash earning 3% which is instant access. I am now waiting for the next stock market crash to buy stocks on the cheap. By reading about the history of the stock market I know that markets crash every 7 to 10 years where stocks are given away for nothing.

Back in 2008 after the credit crisis Citi Group plunged from $80 to $3. By investing $10,000 into this stock you would now be sitting on $133,000 as Citi is currently priced at around $40. Having cash available to capitalize on these crashes every 5 to 10 years will make you incredibly rich.

Rule 9: Hedging and Insuring

Always look for ways to protect your capital and compound it at every opportunity. You can hedge stock portfolio using Out of the Money Put Options. You can make additional income from your portfolio using Covered Calls. By becoming an expert on Stocks and Options you no longer have to take a loss because you can manipulate a position to give you a profit eventually.

Rule 10: Analyze Risk and Return and Be Aware of Scams

Whenever you invest first look at the risk, then look at the return, think whether someone is trying to pull the wool over your eyes. I always strive to align myself with reputable companies that are squeaky clean. Remember how hard it is to build wealth and be aware than a con artist could take it all away very quickly.

Part 3 of 3: Exponential Financial Growth

Rule 11: Create Businesses For Income/Capital Appreciation

The quickest way to wealth is to build a business from scratch which offers income and then liquidate it for big money. It’s entirely possible to build a business on the internet with minimal start up costs. Building a website costs a few hundred dollars and then adding content and monetizing can help to increase income and readership. If you continue to add quality content the site will grow.

Rule 12: Look for Start Up Companies and Invest Early

Savvy investors who want explosive growths invest in start up companies. They invest just at the beginning so growth is explosive when the company starts to expand. Just imagine the return you would get by investing at an early stage in companies like Facebook and Google. Google have just recently launched an equity fund which invests in start ups, this fund is traded publicly so it’s a great way to get exposure.

Rule 13: Develop Property to Build Wealth

Property development is a great way of building wealth especially when prices are depressed the way they are now. Property will eventually recover and any savvy investors are investing in property in good quality sought after locations with the intention of receiving rent and liquidating when prices start to explode again.

During the credit crisis I was able to invest in properties in central London which now pay me a decent income after mortgage. If current trends repeat then these properties should rise in value when property market recovers fully.

Rule 14: Be Aware of Trends

Smart people look at trends over the last 100 years when building wealth. They look at charts of the stock market, bond market, inflation, gold and interest rates. When you look at the bigger picture you will see periods of boom and bust, these savvy investors double even triple their wealth during these boom bust period where the transfer of wealth is monumental, this is where the rich get richer and the poor get poorer. Take the time to learn these trends so you can capitalize the next time the market crashes.

Rule 15: Always Give and You’ll Receive

Every time I give a deserved person some money I feel a mental boost which gives me the courage to pursue my convictions. Recently I gave some money to a charity which helped to build a home for poverty stricken family. This feeling of helping the poor who are trying to get themselves out of poverty is very powerful feeling and has helped me to make even more money.

These 15 rules or ideas have helped me to make an impressive portfolio. These rules have helped paved the way to build a solid foundation where I can build wealth and then make the wealth grow through continual compounding.

These rules have helped me to capitalize on trends and to protect my money through growth of knowledge. As an aspiring individual you need to accumulate as much money as fast as possible. Money buys freedom so you can roam the way you were meant to.